Sustainable Business Management with Climate Earth’s Chris Erickson

May 29, 2013

JOHN SHEGERIAN: Welcome back to Green is Good, and we’re so honored to have Chris Erickson, who’s the CEO and co-founder of Climate Earth, on with us today. Climate Earth is the leading provider of business intelligence systems and consulting for sustainable management. Welcome to Green is Good, Chris Erickson. CHRIS ERICKSON: Thank you, John. That’s a great introduction. I’m delighted to be here and delighted to be on the show. JOHN SHEGERIAN: You know, Chris, we have never had the pleasure of meeting yet, in person or even on our show, and so since you’re a first-time guest and you’re doing some great and wonderful work, before we get into any questions about your business model, please share a little bit how you got here and your journey to Climate Earth. CHRIS ERICKSON: I’d be happy to. You know, most of my career, John, was in computers and enterprise software back in the day. I now consider myself kind of an escapee from Silicon Valley. I’ve been a VP and Division Manager of Fortune 500, I’ve been CEO of some high-tech startups, including an IPO of a data analysis company, an early pioneer in what we now call “big data” and decision-making, which has really been a passion in my career. And then I’ve actually been at the life cycle analysis and environmental analysis focus for quite a while now. It’s been almost seven years. We’re building the market that we call the environmental business intelligence, that is helping companies look a their environmental impacts through life cycle analysis, but combining that with sort of a big data web-based systems, and bringing environmental impacts analysis up to the enterprise level. JOHN SHEGERIAN: Chris, for laymen like me, does that mean what’s measurable becomes manageable, and that’s what you’re doing? You’re gathering all the data to make it more measurable, so therefore the people can manage against it? CHRIS ERICKSON: Yeah. I think that’s really true. In really simple terms, we saw a lot of big companies using spreadsheets to try and manage their environmental impacts. You’d never manage a big company with a spreadsheet. So, we saw these big companies have these huge levers and opportunities for change and improving their business and their bottom line by focusing on their environmental impacts, but they lacked the infrastructure to manage sustainably and realize that potential, and that’s why we started Climate Earth. JOHN SHEGERIAN: Got it. And for our listeners out there, I’m on Chris’s great website right now. I encourage you to go there. It’s www.climateearth.com. It’s very comprehensive, and there’s a lot of great information there. Chris, go back to what you said, supply chain environmental reporting. What does that really mean? Can you elaborate on the meaning of that and what it should mean to our listeners out there that own small and large businesses? CHRIS ERICKSON: Sure. A lot of companies have been focusing on their impacts inside the four walls; that is, the energy they use to run their plants and their electricity and even their commuting. But if you look at a company that makes and builds a physical product or manufactures something, about 80%, typically, sometimes greater, is out in the supply chain and occurs based on the choices they make, from the materials they select, and the suppliers they select. So, looking not only inside the four walls, but at the supply chain, is enormous leverage for companies. It’s kind of like managing the food you intake. What you make your products out of is what your products become, and so managing the environmental impact through the supply chain is strategic because of the quality and impacts of your products, but also is for the leverages, about 80%, as I said. So, that’s where we’ve been focusing our business, on that sort of complex, big data problem, modeling and managing this supply chain impacts. JOHN SHEGERIAN: You know, in your literature and on your website, I read this new term that I’ve never seen before: environmental product declarations, or EPDs. What’s going on with this new terminology, and what does that mean to entrepreneurs and bigger legacy businesses that are out there now? CHRIS ERICKSON: EPDs is a sort of technical term, environmental product declarations, as you said. It’s really an environmental product label. It’s analogous to a nutrition label. You know, today you go out and you’ll see products with sort of green stamps of approval and green leaves on them, and basically some organization has said, “If you do these things, we’ll put our green label on you.” And consumers sort of have to trust what that is. The idea of environmental product declaration is to give the consumer sort of just the facts. Like here’s the calories, here’s the greenhouse gas impact of making this product. Here’s the ozone depletion. I think it’s where we’re going to go. I mean, the fundamental measure when you’re buying a product is knowing its performance characteristics. I mean, if you buy a car, you look at miles per gallon. If you buy a cup of coffee, you want small, medium, or large. And so this comes to giving the consumer the information they need to make smart choices. JOHN SHEGERIAN: Chris, you know, when we were growing up, our moms bought things that had the Good Housekeeping seal of approval. What is going to emerge as the EPD Good Housekeeping seal of approval, and which are not going to make it? Is there such a thing? Is there a jockey and a horse race now for one EPD to emerge, or is this going to be on a multiple basis? CHRIS ERICKSON: This is going to be on a multiple basis, so the core idea of an EPD, like a nutrition label, is to do two things. One, sort of level the playing field, so a company can’t run out and put a green stamp of approval randomly on their product. But it’s designed so the consumers can compare like products, environmental impact. There’s a fairly lengthy process called the product category rule that sets up the rules which a particular category will compare itself on. We just went through one for the construction industry on concrete, of all things. It’s a pretty long stakeholder process for industry participants, academics, look at the life cycle data and decide what are the four or five key things we need to measure, and how do we make sure we measure those in a fair way? And then release the industry to go produce labels and compete on a level playing field. There are some problems with this, pretty significant ones that I think are being overcome. One I call the problem of scale, and the other is complexity for the consumer. The scale problem is because typical life cycle analysis is pretty labor-intensive and manual today, companies are starting to sort of cluster their like products together and label them, and it makes the LCA analysis process simpler, but it’s sort of like walking in the grocery store and saying all condiments are the same, so we’ll put the same nutrition label on ketchup and mustard. That doesn’t make any sense, so I think that direction isn’t going to work. We’ve got to be more scalable and get down to the individual product level and make comparisons for the consumer. And then the complexity one, once we have the labels with scale, I don’t see a solution other than to educate the consumer base about what they mean. When I was a kid, like you said, we didn’t have much nutrition labels on products. We didn’t worry about sugar and stuff like that. We’ve learned how to at least realize that that’s important, and I think the same thing is going to have to happen with environmental impacts. JOHN SHEGERIAN: You know, Chris, one of the things we like to do on the show is talk about the problems and issues that we have in the current times we live in, but also the solutions. Obviously, you’re a solution provider. Can you share, without giving up any secret sauce or without breaking any confidentialities, can you share with our listeners how you work with companies and give a couple prototype examples of what your firm does? For our listeners out there who just joined us, we’re on the line right now with Chris Erickson who’s the CEO of Climate Earth, and you can see his great website and his great work at climateearth.com. Can you give us a couple of examples so our listeners can really say, “Aha! Now I get what he’s doing.” CHRIS ERICKSON: I’ll do that in just a moment, but I want to step back just one moment first, and tell you a little bit more about the problem we’re trying to solve. When we looked at the environmental management and measurement, we saw a lot of companies out there working with spreadsheets and doing isolated, random acts of goodness, measuring inside their four walls. We didn’t see this broad-based system of management, like they have for financial management. Being systems guys and big data people, we realized that we thought there were three fundamental requirements for a successful system. One was what we call coverage, that is looking at all the environmental impacts of a company, not just one or two, so that you can make smarter strategic decisions. The second was having run a big company, I realized that you can’t run an organization with two rudders. A big rudder is the financial system, so we needed to connect in or merge with the financial system so you can make environmental decisions in financial contexts. What I mean by that is look at product line profit vs. greenhouse gas emissions. If you think energy prices are going up and you have low margins and high greenhouse gas, you might want to redesign that product. And the last thing was scale, that is making sure that we can scale environmental management as effectively as we scale financial systems. What we found is that the companies that we work with tend to be medium to large-scale, and a lot of leaders today – sometimes I’m just amazed. Not all leaders are obvious. One of our medium-sized but big companies is a concrete company called Central Concrete out here in California. They looked at the concrete business, and by the way, I should say that concrete is the sidewalk you walk on. Some people call that cement. Cement is the glue that holds the concrete together, and cement is 5% of the U.S. greenhouse gas footprint, and they looked at that and said, “You know, is the future of concrete going to be pure cement-based? It doesn’t make any sense.” The making of one ton of cement adds one ton of CO2 to the atmosphere. JOHN SHEGERIAN: Wow. I didn’t realize that. CHRIS ERICKSON: So, they decided that there was a huge business opportunity and an environmental opportunity to invest in clean, green concrete, and not only put a laboratory in place to design new mixes, but to be able to communicate the impacts they’re having quantitatively to the client and their customers, architects and big buyers of buildings. The result is they’ve put together an environmental business intelligence system with us, and it takes all their business systems data, the material that goes into their products, their pricing and cost, their performance attitude after the impressive strength of concrete, mixes that in with the environmental data, and now they have online access to every single on of their 3,000 or so concrete mixes. They can go into contractor and owners and talk about not only concrete is a simple product, but the compressive strength. If you’re building a bridge, it’s got to be 12,000 PSI. But they can put right in with that similar mixes that have same performance requirements, and the customer can look at the environmental performance, the EPD, at the same time, and make informed decisions. It’s a full system. It’s become part of their management, reporting, marketing externally, and the laboratory uses the data to design new mixes. I think it’s the wave of the future for business. JOHN SHEGERIAN: No kidding. Let me just step back here. When did you start Climate Earth? CHRIS ERICKSON: I didn’t mention that. We started Climate Earth back in 2008. JOHN SHEGERIAN: OK. So, compare today – of course those were some tough times that we all lived through in 2008 in terms of the business environment – but compare today. We’re here in 2013, Chris. Compared to 2008, what is the uptake, and what is the business environment in terms of looking for your services and adopting your services and your great technology and your great comprehensive holistic approach to sustainability? How is that going? CHRIS ERICKSON: We’ve really seen an uptake in the last couple of years. Last year was the best year ever. I think that’s going to happen again this year, another great year. The companies have really changed. To be honest, back in 2008, a lot of companies thought we were the kooks from California trying to measure supply chain impact. And now we’re working with Fortune 100 companies who are coming to us and saying, “Can you help us shape and manage a longer-term strategy? Our supply chain is $25 billion. We cover 60+ countries. Where do we focus?” We’re able to help them answer that question and give them a system that provides long-term guidance and measurements across the biggest impacts that they’re making. It makes a world of difference. JOHN SHEGERIAN: That’s great. Chris, I’m so impressed with what you’re doing and this whole notion of EPDs and probably, as you said, are going to be the future wave. Who is your competition? I haven’t heard of any other company, and I’m in the industry. I’m in the environmental and the recycling industry. Do you have ten competitors, 50 competitors, no competitors? How does it look, that landscape? CHRIS ERICKSON: Well, I’d love to say we don’t have any competitors, but we have lots of competitors. There’s lots of ways to slice the sustainability pie. We have competition from in-house life cycle analysis, do it by hand, hire your own staff. We have competition from companies that go out and hire somebody who is single LCA. It’s money that’s going into trying to solve the sustainability problem, which I think is great in some ways. We also have software companies that we compete with, and we are a little bit unique in that we’re this merger of both software and big data. We’re focused on this big data problem, which is pretty unique. We’re probably the only life cycle consulting company that has achieved systems architect, and that has a team of people with backgrounds in big data management and analysis, as well as life cycle analysis. That tends to make us a little bit unique today. JOHN SHEGERIAN: Well, speak about that a little bit. We’re down to the last 2-3 minutes or so, but I want you to continue to go in that direction, Chris, in that you came out of technology. First of all, you are an entrepreneur and you’re also an operator. You have been historically, so you sat in the business’s shoes that you’re now talking with and trying to have them adopt your systems. But you also are a person who envelopes and embraces technology. How also do you work closely with academia to set your products apart and differentiate yourself from other competitors out there? CHRIS ERICKSON: That’s a really important point. You know, this is a market that’s really developing, and a lot of big companies are turning to academia to help and get advice, and we’ve done the same thing to keep our products on the leading edge. We work very closely with a project at the University of Minnesota right now, a new project to develop cutting-edge tools for supply chain management. We have a close relationship with UC-Berkeley, where we’ve done some joint projects. We’re also forming a relationship with Carnegie Mellon University to advance the state-of-the-art. I think these are really strategically important for us, and they give us an opportunity to work with academia and put those latest advances into our products. We give them a platform of data to do their research, so it’s worked out very, very well for us. JOHN SHEGERIAN: That’s great. Chris, we’re down to the last minute or so. Talk about the future of Climate Earth and where’s your company going. When you come on our show next time, where are you going to be? CHRIS ERICKSON: You know, one of the things that I’m just really fascinated by – it came out in Brazil at the last climate conference mid last year, and it was this notion of natural capital accounting. We saw 50 countries and 86 private companies join forces behind the idea of measuring the financial, the dollar impact, of their environmental activities in the environment, the idea of putting a financial value on your environmental impacts. So, the notion is you can do an LCA and understand your ozone depletion, but how do you dollarize that? How much is that externality worth? $25 million. How much is your GHG impact? $40 million. All of a sudden you start to have all your environmental impacts in dollar form, and executives can understand that and begin to make more refined trade-offs. So, I see natural capital accounting as being an emerging next generation of environmental management, where companies are actually monetizing their environmental impacts, putting a dollar value on them, and using those dollar values to guide their business strategically. JOHN SHEGERIAN: Well, Chris, we’re going to have you back on Green is Good. Go out and look at his site, climateearth.com. Call him up and use his services. Chris Erickson, you are a visionary sustainability leader, and truly living proof that green is good.